If you’re a start-up or expanding your business, you are probably quite familiar with business loans. One might ask however, how do I know what the best loan for my business is? Besides the advice of a financial officer, the ideal answer is to probably not have any loans. However, once you understand that isn’t necessarily an option for most small businesses you’ll need to understand the types of loans that are available. So lets take a look at different options below:
Line of Credit
The most flexible loan is generally a line of credit where you can draw additional funds as you need them and pay them back when you have excess cash flow without applying for another loan. This will require documentation of cash flow so that your bank can see that this loan won’t continually increase and that you have the ability to pay back the line of credit as it is used.
If you’d like to acquire equipment or business real estate, fixed loans would be your best option. You may need some specific business tax advice as you look at these loans to see how best to deduct the interest on them. The bank will be more interested in the collateral and the ability to repay on this type of loan.
The interest rate the bank charges will go up and down depending on the credit worthiness of your financial statement. Therefore it is extremely important to have a good small business accounting system in place, so that the bank can rely on your financial information and understand that you will make payments.
In summary, always remember your financial statement tells the banker a story about your business. Don’t take a financial statement into the banker if you don’t understand yourself what the story it tells. Spend some time with the expert who provides your small business accounting service before you meet with the banker in order to increase your chances of success in getting a loan for your business.
Bert Doerhoff is owner and founder of Accubiz, a firm providing accounting services out of Jefferson City, Missouri. Accubiz specializes in small business accounting, bookkeeping service, and wealth management.